General Motors Round II: So Far, So Good

NEW YORK (TheStreet) -- On Nov. 18, 2010, General Motors (GM) completed its $23 billion IPO and began to trade again as a public company. But that isn't what most people remember of the auto giant.

They remember a couple years earlier, where General Motors was doing its best to stay above water and figure out a restructuring plan, since its current business operations were weighing heavily on its debt-straddled balance sheet.

General was in trouble even before the recession hit in 2008. In 2005, the auto company lost over $10 billion. In 2007, losses amounted to $38.7 billion and sales dropped nearly 50% the following year. Then the recession really hit.

There's no question that 2008 was tough. Chrysler was dragged down and filed for Chapter 11. Ford ( F) also suffered massive losses and, while it didn't file for bankruptcy, its stock did trade all the way down to $1, marking the depths of a very hard time in Detroit.

After multiple discussions with the government, General Motors ended up with $49.5 billion in government loans. It also agreed to let the Treasury Department own a 60% stake and eventually was forced into Chapter 11 bankruptcy.

The government reduced its stake to 26%, or 500 million shares, after the company resumed trading, and has since lowered it to 19% on the way to unraveling its position completely.

General has also been able to repay the government for its efforts on restoring at least one of the Big Three. Well, technically speaking. While General did pay back the cash obligations to the Treasury, the rest of the loan is through its stock.

The government would need to sell its entire stock position in the low $50 range to break even. Since it has already begun to unravel its position below that mark, the break-even price would be even higher. So while General Motors did fulfill its obligations, the government will still absorb a multibillion dollar loss.

How is the company doing now? Since 2010, the automaker has resumed profitability and remained that way each year since. In fact, it's posting record profit.

In 2011, General Motors posted an income of $7.6 billion, a record in the storied giant's 103-year history. When you look at the numbers for 2011, it makes sense why the new General did so well. With 9.025 million units sold, it dethroned Toyota ( TM) as top seller of the year.

Taking it one step further, Chevrolet, a GM brand, sold more than 4.75 million units, which is a global sales record for a specific brand.

Where's the trouble for the stock? The answer is obvious for anyone who has been an investor in an either General Motors or Ford. The companies are more efficient, sales have rebounded and they're posting record profits. So where's the love? Simply put, it's because of Europe.

The economic slowdown across the pond has caused the automakers to lose billions. Last quarter alone, General lost about $200 million, an amount that weighs on both earnings per share and the stock price.

It was estimated that losses would be close to $2 billion for 2013, but with the strong start to the year, it might not be as bad as many investors had first thought.

In other words, the darkest days may be gone. Investors have been buying into the recent talks that Europe is bottoming -- or close to bottoming -- and that losses should begin to shrink relatively soon. For the autos, let's hope this is the case, since this is the anchor holding them down

On the flip side, domestic sales continue to provide a boost to the share price. With the release of the May sales numbers, it showed that 1.4 million units were sold. The annualized sales rate now hovers close to 15.5 million units and continues to show incredible strength in the domestic market.

While the company is no longer part of the Dow Jones Industrial Average, it has taken a step in the right direction with its addition to the S&P 500, which marks just how far the company has climbed since 2008 and how much adversity it has overcome.

Considering that Europe may be bottoming, domestic sales are strong and the company is back in the S&P 500, General Motors has a lot of positive catalysts going for a company that filed for bankruptcy just three years ago.

While General isn't out of the woods yet, it certainly seems to have found an efficient path. At the time of publication, the author was long F.

Bret Kenwell currently writes, blogs and also contributes to Rocco Pendola's Weekly Options Newsletter. Focuses on short- to intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.